What is a time spread?
A ‘Time Spread,’ also called a Calendar Spread or a Horizontal Spread, involves the use of multiple options of the same type (either all calls or all puts), with the same strike price but different expiration dates. Generally traders will sell a near-term option (take a short position) and buy a far-term option (take a long position). The strategy is virtually identical whether calls or puts are used. Continue reading...
How Do Deductible and Non-Deductible IRAs Differ?
It is possible to make non-deductible contributions to an IRA, even if you have a qualified plan at work. Traditional IRAs are a good place to stash retirement money because of the tax treatment. Some people will choose to make contributions even when they are not deductible, which gives us two kinds of Traditional IRAs: deductible and non-deductible. Deductible IRAs provide a way to lower your taxes because you can deduct contributions to your IRA from your income. Nondeductible IRAs do not allow you to deduct your contributions, but they still retain their tax-deferred growth. Unlike a Roth, these after-tax contributions will be taxed upon withdrawal as income. Continue reading...
What Provisions Should a Long-Term Care Policy Contain?
Long-term care insurance policies can be structured in any number of ways, depending on your desired coverage. More coverage equals more premium cost, but may save you money later in life if you use your policy for a number of years. There are a variety of provisions (also known as riders) to consider, including but not limited to the dollar amount of your daily benefit (usually $200 - $500), whether it is a reimbursement or paid in full, which facilities qualify for coverage, what kind of assistance you’ll provided, whether or not it includes a nurse on duty 24 hours a day, access to a doctor, whether you’ll have a room to yourself or not, and so on. Continue reading...
What is Second-To-Die Life Insurance?
Second-to-die policies are also known as survivorship policies, and are primarily used by married couples to provide a guaranteed legacy to their children after they have both passed away. These come in handy for estate planning, when an estate tax bill might be looming for the heirs. To be clear, this insurance covers the lives of two individuals and provides a death benefit to a listed beneficiary only after the last surviving insured individual dies. Continue reading...
What is the Fiduciary Standard?
The Fiduciary Standard stipulates that an advisor must place the client’s best interests first. The best way to understand the fiduciary standard is to think in terms of another standard, called the suitability standard. The suitability standard says that a broker/advisor need only recommend investment products that are “suitable” for the client - but those investments do not necessarily have to be in the client’s best interests. Continue reading...
What is an Earnings Multiplier?
The earnings multiplier is more commonly known as the P/E ratio (price/earnings ratio). By putting the price of a stock over the earnings per share, you have a proportion that can be compared across various securities with different price points. It may be common for a company in one industry to have a different-size P/E than another, but comparing a company to its peers will prove helpful. Analysts use the P/E ratio to determine whether a stock is overpriced or underpriced, and the same goes for the market as a whole. When the average P/E for all of the stocks in an index is found and compared to historical levels, investors can get clues about whether the current price can be supported for long by fundamentals. Continue reading...
What is the Lifetime Learning Credit?
The Lifetime Learning Credit is a federal tax credit to offset expenses associated with higher education. There is no age limit and the credit can be applied to part-time student courses, even if it is only one class. The credit is for 20% of the related expenses up to a maximum of a $2,000 credit per household. Tax credits are a dollar-for-dollar reduction of taxes due. The Lifetime Learning Credit can be used for higher education expenses, regardless of the age of the student, but there is a household limit per year. 20% of educational expenses up to a household maximum of $2,000 can be applied as an income tax credit. The credit exists to make it easier for Americans to increase their skill-set and education. Continue reading...
What is the Broadening Top (Bearish) Pattern?
The Broadening Top pattern forms when a security price makes higher highs (1, 3, 5) and lower lows (2, 4) following two widening trend lines. The price is expected to move up or down past the pattern depending on which line is broken first. What distinguishes a Broadening Top from a Broadening Bottom is that the price of the security is rising prior to entering the pattern formation. This type of formation happens when volatility is high or increasing, and when a security’s price is moving with high volatility but little or no direction. It indicates growing investor nervousness and indecisiveness. Continue reading...
What is a Buying Hedge?
Hedging against future price risk was the main reason Futures contracts came into being. If an investor or a business knows that they need to acquire an asset or security at a future date, they might go ahead and agree to a price and have it in writing on a Futures contract. A futures contract means that an item has been sold at a stated price, and only awaits settlement at a future date. This will protect them from the risk that the price will move unfavorably in the future, and it will allow them to balance books and plan a budget with more certainty. Futures contracts are standardized and traded on exchanges. Continue reading...
What is Chapter 9?
Chapter 9 is a form of bankruptcy filing that is reserved for municipalities which have defaulted on their debt obligations. This could include a school district or other entities which have a municipal affiliation and the ability to generate revenue from local taxes. They cannot be made to liquidate anything. In fact, it forces the lender to accept a refinancing of the debt obligation. Because municipalities fall under state jurisdiction, the federal government, which governs bankruptcy court, does not have the ability to force liquidation of a municipal entity’s assets. Instead, this provision of bankruptcy law governs refinancing arrangements to facilitate the repayment of debts owed. Continue reading...